Market rules designed with other assets in mind fail to take advantage of new energy sources and their reliability capabilities. The Wind Solar Alliance argues in a new report, “Customer-Focused and Clean: Power Markets for the Future,” that an outdated electricity market requires fundamental changes in the nation’s electricity grid.
Market rules can make or break the economics of an individual supply or demand resource as well as the reliability and affordability of electricity. The grid has been dominated since the mid-20th century by large and slow-moving fossil-fired, nuclear, and hydroelectric resources. There were few wind and solar generators, independent power producers, or non-utility electricity purchasers when the current grid gained ascendance.
Current power market designs reflect many tools and assumptions from when the grid was dominated by conventional resources. These market designs have not yet adapted to the capabilities and demands of newer technologies and fuels, and they have not taken advantage of the advances in computing and control innovations now available.
Most rules of regional transmission organizations (RTOs) were written before renewables made up a meaningful portion of the generation fleet. Typical energy generation descriptors such as “inertia” and “spinning reserve” reflect attributes of certain generators and are not actual reliability services, according to the Wind Solar Alliance.
Question: The press release described changes in the electricity generation market, using jargon like “frequency stabilization and regulation, ramping, voltage regulation, disturbance ride-through, and 10- or 30-minute reserves [that] can be provided as well or better by modern wind, solar, storage, and demand response resources.” Grassroots advocacy can help to inspire market design changes among local and regional policy and stakeholders, so, would you please translate these concepts into terms of everyday language that advocates can embrace and articulate on the local level?
Rob Gramlich, another of the report’s authors and founder/ president of Grid Strategies, LLC, analogized wind, solar, and other renewable energy sources “as a digital player is to music –it’s electronically controlled as compared to a traditional record player spinning, like that of coal. Some services can by provided by wind and solar” that the market design does not currently invite. “These are digitally controlled, as opposed to much inertia — within fractions of a second they can stabilize grids.”
Gallagher from SEIA noted that “people don’t really notice the sources of their electricity as long as the lights stay on.”
John Kostyack, executive director of the Wind Solar Alliance, added, “Customer demand is a big part of the story. If states and major markets want to have the strongest electrical markets, new market designs are necessary.”
Low-Cost, Reliable Energy Ain’t Getting the Respect It Deserves
Major changes have taken place in electric fuel costs, technology capabilities, market structure, customer preferences, computing power, and communications technologies — all of which work together to provide healthier, more cost efficient, reliable, and renewable energy generation.
Kostyack says that the “Customer-Focused and Clean: Power Markets for the Future” report demonstrates the numerous ways that existing market structures are biased in favor of “older, large, slow-to-react resources.” He maintains that, although wind and solar power are beating all other sources on cost in many regions, “grid operators limit their deployment by failing to utilize them for reliability services such as ramping and frequency regulation. It’s time for market operators to ensure these clean, low-cost technologies are appropriately recognized and rewarded for the reliability services they can provide.”
What Market Reforms Need to Take Place for Optimal Wind and Solar Generation?
Today’s market design should favor the lowest cost resources with the most flexible capabilities, according to the Wind Solar Alliance. This is because the speed of shifts in the technology and economics of different resources have outpaced the speed of policy and market evolution.
Given that these newer technologies often outcompete conventional resources on cost and environmental performance, market design changes will be needed to accommodate them. For example, energy storage and automated demand response need to be deployed sufficiently to absorb and mitigate excess solar and wind generation.
“Customer-Focused and Clean: Power Markets for the Future” outlines that, as a whole, wholesale market rules need to become more closely aligned, keeping several considerations in mind:
the growing demand for clean, low-cost renewable generation, energy efficiency and distributed generation
the need for reliable, affordable electricity necessitated by a challenging global economy
federal and state mandates requiring fair, non-discriminatory opportunities for all providers, technologies and customers
Market Reforms for Electricity Generation
The Wind Solar Alliance recommends 4 reforms so markets are flexible, fair, far, and free.
“Flexibility” refers to both the market and the power system. A flexible power system should be able to respond and adapt to changes in uncontrollable or non-dispatchable factors such as consumption (load), wind speed, solar insolation, other generator output deviations, forced generation outages, and transmission disruptions. Modern grid response capabilities need to be faster and cover more megawatts than in the past. Fortunately, modern computing, communications, and control technology, including the fast controls of inverter-based resources, allow much faster response than was previously possible. The market design must also be flexible enough to serve a variety of alternate resource and load scenarios effectively without the need for drastic redesign.
A “fair” market will treat all customers and resources evenly and allow all the opportunity to succeed. Such a market will be designed around service requirements and performance capabilities and be fuel-neutral and technology-agnostic, without inappropriately advantaging or penalizing particular customers or resources. It will compensate based on objectively metered services delivered, rather than subjectively determined resource capabilities or attributes.
A market should have a “far” and broad geographic span to maximize the efficiency benefits of supply and demand diversity and reduce variability of resources by netting them out against each other. It will expand deliverability options between resources and customers. System operator borders will operate seamlessly and RTOs will expand in their geographic scope.
A “free” market facilitates customer choice and does not raise barriers to market entry and exit. It should also support customers’, states’, and local authorities’ ability to act on choices about how to balance between goals such as least- cost, distributed versus centralized, environmental impact, local and in-state development, and other priorities.
“Power markets benefit customers most when all resources are allowed in,” said Gramlich. “The key to operating reliably and efficiently through the resource shift taking place is to make sure market design appropriately compensates flexibility and eliminates undue compensation for inflexible resources.”
Policies at the Local and State Levels
During the November 19, 2018 press conference that introduced the “Customer-Focused and Clean: Power Markets for the Future” report, we at CleanTechnica posed other questions about energy certificates, tax credits, and RTOs, wondering how these feed into the impetus for electricity market design reform. Gallagher responded initially that “RTO market rules are not part of today’s talk,” but journalists that followed CleanTechnica in the queue repeated the desire to learn more about on-the-ground governmental advocacy.
Gramlich allowed that “interventions at the state level (do exist), but this report didn’t get into those options. It’s outside the scope of what we’re doing here.” After more prodding about the stakeholder process, Kostyack noted, “RTO rules are significantly determined and driven by stakeholders and governing structures. In this report, we’re trying to appeal to whatever stakeholders are interested in these reforms, as well as RTOs and the Federal Energy Regulatory Commission (FERC), which has intervened in storage rules.”
Amy Farrell, senior vice president, government & public affairs at the American Wind Energy Association, added, “Obviously, we see this report as a useful education piece. As industry trade associations and organizations, there is a significant effort to move along market designs, keeping in mind the need to procure the services that customers want.”
The desire on the part of journalists in the press conference queue to learn more about translating the report into policies at the local and regional stakeholder level did catch the report’s authors off-guard but also gave them a sense of what next steps could be taken to continue to continue to push for electricity market design reforms.
An effective power system should provide customers and regulators with reliable and affordable power. Erik Heinle, assistant People’s Counsel, DC Office of the People’s Counsel, affirms the findings of the report. “The Wind Solar Alliance has developed an important and well thought-out roadmap to achieve these goals by harnessing new low-cost, high-performing wind and solar technologies and successfully integrating them into the grid, while reducing consumers bills and improving reliability.”
Knowing that market rules can make or break the economics of an individual supply or demand resource and the reliability and affordability of electricity, isn’t it time to reform archaic electricity generation market designs to reflect the needs and technologies of the US today? The Wind Solar Alliance has a good start in its new report and will likely expand its target audience to include more grassroots efforts toward market design evolution as progress is made.